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Rosenfeld v. Fairchild Engine & Airplane Corp. - 309 N.Y. 168, 128 N.E.2d 291 (1955)

Rule:

Management may look to the corporate treasury for the reasonable expenses of soliciting proxies to defend its position in a bona fide policy contest. 

Facts:

Appellant William Rosenfeld brought a stockholder's derivative action where he sought to compel the return of funds paid out of the corporate treasury to reimburse both sides in a proxy contest for their expenses. The lower courts affirmed the judgment of the official referee that dismissed appellant's complaint. The court affirmed the dismissal.

Issue:

Was the dismissal of the appellant’s complaint proper for the reason that the appellant did not argue that the funds were fraudulently extracted from the corporation, but instead admitted that the charges were fair and reasonable?

Answer:

Yes.

Conclusion:

The court noted that appellant did not argue that the funds were fraudulently extracted from the corporation, but instead admitted that the charges were fair and reasonable. The court held that since appellees acted in good faith in a contest over policy, they had the right to incur reasonable and proper expenses for the solicitation of proxies and in defense of their corporate policies, and were not obliged to sit idly by. The court also noted that stockholders had the right to reimburse successful contestants for reasonable and bona fide expenses incurred by them in any such policy contest, subject to court scrutiny. Thus, the dismissal of appellant's complaint was proper.

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